A movement to derail a controversial takeover of Astral Media Inc. by telecom conglomerate BCE Inc. is gaining momentum as major wireless provider Telus Corp. joined ranks Tuesday with other big corporate and consumer interests already opposing the $3.38-billion mega-merger.

“We do not believe the government should allow the deal to proceed,” David Fuller, chief marketing officer for Telus said in an interview.

Telus, the country’s third-biggest mobile carrier, is lending support to a campaign against the bid spearheaded by Quebecor Inc., Cogeco Cable Inc. and EastLink. The three cable operators argue that a successful acquisition will concentrate too much market power in the hands of BCE, which would inflate costs for companies and consumers and diminish competition in host of related services, like in Internet and wireless.

There’s a significant list of people who are saying, ‘Guys, maybe we need to give our heads a shake’

The campaign has been joined by the Public Interest Advocacy Centre, one of the country’s biggest consumer watchdog groups, among others.

“There’s a significant list of people who are saying, ‘Guys, maybe we need to give our heads a shake; this market is getting too concentrated now where so few companies control so much of our media,” Mr. Fuller said.

In a rapidly consolidating market where larger telecom distributors have snapped up nearly every major broadcast asset in the country over the last 24 months, Bell has been the most aggressive player.

Bell’s bid for Astral, which owns popular pay-TV and specialty channels like The Movie Network and Teletoon, came 11 months after it acquired for $1.3-billion (plus debt) the country’s biggest TV network in CTV Inc. and a mere three months after it announced plans to divide a controlling stake in Maple Leafs Sports and Entertainment, owner of major pro sports teams like the Toronto Maple Leafs, with Rogers Communications Inc.

The public campaign against the Astral bid comes ahead of regulatory hearings slated to begin Sept. 10 in front of the Canadian Radio-television and Telecommunications Commission.

Related

To get the deal passed, Bell says it will divest a minimum of 10 radio stations in order to fall within permissible thresholds, but further divestitures could be in store, sources suggested. Though figures vary, the “Say No To Bell” consortium argues that combined English-language audience share for Bell Media would exceed the 35% level that regulators begin getting nervous about.

Telus said Tuesday that Bell’s share would jump to 49.5% if the MLSE and Astral purchases were combined with the media unit’s current holdings, which includes top-performing cable channels like TSN among 29 specialty services, as well as 28 conventional TV stations across the CTV and CTVTwo networks. Telus said the joint Bell-Astral entity would be comparable to U.S. telecom giant Verizon acquiring major U.S. satellite provider DirecTV, the CBS network, ESPN, HBO and half a dozen other major media firms in that market.

“It’s a gravely concerning proposition when examined in that context,” Darren Entwistle, chief executive of the Vancouver-based phone giant said in a statement.

Investors who bid up Astral after the $50-per-share offer was announced have begun expressing doubt about the deal getting through in its current form. Astral’s stock is off 4% following the Quebecor-led campaign’s launch last week, and has trended down since the beginning of the month.

The pessimism stems in part from concerns the Competition Bureau will step into the fray, even if the CRTC approves the transaction.

There are currently two open files into BCE, one run by the mergers unit and another by the civil branch. The latter is concerned with Bell’s conduct since it acquired CTV, going so far as to request through the courts information from competing cable providers Bell was locked in carriage disputes with until recently.

“Based on information received to date, the commissioner is concerned that Bell is imposing, or seeking to impose, unlawful restrictions on competing [TV providers’] ability to access or distribute Bell-owned content,” documents filed with Federal Court in July state.

Those in the dispute, including Telus, complained that Bell forced stringent demands alongside higher rates in order to maintain continued access to channels. Rights for mobile and online access to programming meanwhile were kept off the table — rights most programming owners are packaging into deals these days.

“The Astral acquisition might make that behaviour that much more of an issue,” Mr. Fuller said.

George Cope, chief executive of Bell, dismissed the deal’s opposition last week during an earnings call which highlighted much better-than-expected results at Bell Media owing to higher subscriber fees.

“We fully anticipate the transaction to close in the fourth quarter,” the executive said.

He said Bell’s math showed its media unit’s English-language audience share at 33.5%, a level that compared with Shaw Communications Inc.’s media unit when combined with Corus Entertainment Inc., a completely separate company but one whose voting shares are controlled by the Shaw family.

“We are meeting all the CRTC requirements,” Mr. Cope said.

Still, with scrutiny building on multiple fronts, sources suggest Bell may be forced to part with some of Astral’s assets to receive regulatory consent, or at minimum agree to measures to curb anti-competitive behaviour.

In its submission to the CRTC, Rogers has suggested Astral be forced to sell-off portions of its TV business, which could balance the competitive scales for other players.

“Do I think they’re going to green-light the deal with no changes at all? I think that’s a very low probability,” one source said. “But do I think they’ll outright block the deal and say no, probably also a low probability.”

The picture darkened a shade or two for the cable television industry Thursday after a flurry of earnings reports showed subscriber losses across the board.

Astral Media Inc. and Corus Entertainment Inc., the owners of profitable and popular pay-TV networks such as HBO Canada and Movie Central, reported unexpectedly sharp customer declines in the third quarter ended May 31.

While still generating enviable profit, the dips are separate signs — and additional evidence — that cable’s heyday appears to be drawing to a close, market observers say.

In place of the steady revenue and margin expansion cable operators once enjoyed almost automatically stand long-talked about — and now plainly visible — scraps for market share that are just entering their opening rounds.

Related

Cogeco, the country’s fourth-largest cable provider, lost nearly 5,000 basic TV subscribers in the latest quarter, a period Louis Audet, Cogeco’s chief executive, called the start of a “new competitive phase.”

Analysts peg the prime cause for the decline on Bell Canada Inc.’s new Fibe TV service. Bell, already a major satellite provider, has been focused on rolling out a new IPTV (Internet protocol television) system that can take on cable in denser urban areas.

Already applying heat on Rogers Communications Inc. in Toronto and Quebecor Media Inc.’s Vidéotron in Montreal, Bell has now begun encroaching upon Cogeco, which holds a dominant position in towns and cities between Windsor and Quebec.

“The battle never stops, and it never will,” Mr. Audet said on a conference call. “That’s quite alright, the consumer wins.”

All of Canada’s large “cablecos” are being forced to respond to the IPTV threat from Bell as well as from Telus Corp.

In Western Canada, Shaw Communications Inc. has weathered a bruising assault from Telus’ Optik TV service, which has acquired one-fifth of the market in Alberta and British Columbia in recent quarters.

Yet the traditional cable business is also confronted by customers looking to the Internet for programming, a demand being filled by multiple players including new-entrant content providers such as Netflix Inc.

The disruptive threat of online distribution is affecting both television distributors such as Cogeco, Rogers and Bell as well as channel owners such as Astral and Corus who are seeing their bases challenged by the shift.

In the eastern part of the country, Astral said it lost 22,000 HBO Canada/The Movie Network customers from the second to the third quarters. In the West, Corus, which operates Movie Central/HBO Canada, shed 13,000 subscribers.

On a year-over-year basis, Corus said its base is off 4.8% to 975,000. Astral is down 1.5% to 1.847 million customers.

Executives for each media company said the pending launch of a new HBO “GO” service that streams programs online and to wireless devices, combined with new promotions, should ignite a pay-TV turnaround.

“We believe we’ve got the right strategies in place to return to a steady growth pace,” Doug Murphy, Corus’ president of television, said on a conference call.

Ian Greenberg, chief executive of Astral, which has been sold to Bell for $3.38-billion, dismissed analyst questions about whether the weakness stemmed from online competition.

“We believe our pay-TV total subscribership will be equal to last year at the end of the fourth quarter … which means we’ll have to have a gain to accomplish that,” the executive said. “Last year in Q4, we lost subscribers. This year, we expect to increase subscribers.”

Executives from each said a soft ad market also weighed on revenues, but Corus CEO John Cassaday said his firm was experiencing higher sales in recent weeks.

Despite the revenue pressure, Astral and Corus still preserved profit margins in the third quarter.

Cogeco reported better-than-expected earnings, aided in part by growth in Internet services.

However, the cable company cut its customer growth expectations for the year citing a “combination of category maturity, competitive offers, and the tightening of its credit controls and processes.

]]>http://business.financialpost.com/fp-tech-desk/tv-providers-watch-subscribers-numbers-drop-as-cable-faces-new-challenges/feed1stdAstral Media Inc. and Corus Entertainment Inc., the owners of profitable and popular pay-TV networks such as HBO Canada and Movie Central, reported unexpectedly sharp customer declines in the third quarter ended May 31.BCE offers more Canadian programs, radio sales in bid to win Astral dealhttp://business.financialpost.com/fp-tech-desk/bce-offers-more-canadian-programs-radio-sales-in-bid-to-win-astral-deal
http://business.financialpost.com/fp-tech-desk/bce-offers-more-canadian-programs-radio-sales-in-bid-to-win-astral-deal#respondTue, 10 Jul 2012 22:10:08 +0000http://business.financialpost.com/?p=193189

TORONTO — Canadian telecom giant BCE Inc offered to spend $200-million on Canadian programming and sell 10 radio stations on Tuesday as it tries to win regulatory support for its C$3 billion acquisition of Astral Media Inc.

Shareholders of Montreal-based television and radio company Astral Media approved the deal in May. But it is bound to face close regulatory scrutiny because of the growing media heft of BCE – the country’s largest telecom company – especially in the wake of its 2011 takeover of CTV, Canada’s largest private broadcaster.

BCE is buying Astral to lock-up more programming for its media platforms and to expand its presence in French-speaking Quebec.

Related

It had already indicated it would sell some of Astral’s radio stations after the purchase so that it does not run afoul of Canadian regulations that limit the number of radio stations that one company can own in each geographical market.

In its statement on Tuesday, BCE said regulations would require it to sell nine FM stations and one AM station in Vancouver, Toronto, Calgary, Ottawa-Gatineau and Winnipeg for the deal to win approval.

BCE said its commitment to spend C$200 million on Canadian programming shows the “tangible benefits” that will be created by the deal. Such payments are a condition for approval of takeover deals in the industry.

A final verdict from industry regulator, the Canadian Radio-Television and Telecommunications Commission, on the deal won’t come until mid-October following the completion of a one-month public comment period that has just begun and the hearings that will follow it.

The deal must also pass muster with Canada’s antitrust regulator, the Competition Bureau.

]]>http://business.financialpost.com/fp-tech-desk/bce-offers-more-canadian-programs-radio-sales-in-bid-to-win-astral-deal/feed0stdBCE is buying Astral to lock-up more programming for its media platforms and to expand its presence in French-speaking Quebec.Astral Media shareholders back BCE takeover, reject bonus for CEOhttp://business.financialpost.com/fp-tech-desk/astral-media-shareholders-back-bce-takeover
http://business.financialpost.com/fp-tech-desk/astral-media-shareholders-back-bce-takeover#respondThu, 24 May 2012 16:04:08 +0000http://business.financialpost.com/?p=178107

MONTREAL — Astral Media Inc. cancelled a shareholder vote on a planned $25-million special bonus and retention payment to its chief executive Ian Greenberg as part of a takeover of the company by BCE Inc.

The company determined that based on proxies received prior to the meeting, there would not be sufficient support for the payment. Money management firm Jarislowsky Fraser were among the investors who had criticized the payout in recent days.

Related

Astral shareholders approved the larger question of BCE’s takeover of Astral by an overwhelming percentage greater than 99%. The takeover is expected to be finalized in the second half of 2012.

Astral was not required by law to hold a separate vote on the payment to Mr. Greenberg by its class A non-voting shareholders but its board decided to do so voluntarily for “good corporate governance,” a company spokesman said.

MONTREAL — A prominent investor and a business watchdog are denouncing BCE Inc.’s plan to pay Astral Media Inc.’s founding family more than other shareholders to buy the media company, calling it a corporate governance blunder.

The issue will come to a head Thursday in Montreal when Astral shareholders will be asked to approve the $3-billion takeover by BCE, unveiled in March. The deal is expected to pass, but not without criticism. Opponents of the transaction say it tramples on the rights of minority shareholders in much the same way Magna International Inc. did when the company bought out founder Frank Stronach’s special shares for US$863-million.

‘Basically people and smart lawyers are circumventing the rules [on dual-class shares] by getting more cash compensation to certain shareholders’

“Basically people and smart lawyers are circumventing the rules [on dual-class shares] by getting more cash compensation to certain shareholders,” said Len Racioppo, president of money management firm Jarislowsky Fraser Ltd., which owns roughly 4% of Astral’s non-voting shares in addition to a smaller voting stake.

“That is not healthy for the markets. I mean if you want good and efficient and well-running capital markets where your everyday investor feels like he’s going to be treated fairly and no different than any other investor, you have to address this type of thing.”

Jarislowsky sent a letter to the Ontario Securities Commission dated May 15 asking the regulator to intervene in the Astral deal or consider further changes to its current rules. It has yet to respond. In the Magna case, the OSC forced the company to provide greater disclosure but in the end did not block the transaction.

Related

The controversy at Astral centres on the company’s three separate classes of shares and a special $25-million sum being paid to Astral chief executive Ian Greenberg, one of four brothers who founded the company 50 years ago.

BCE is paying $50 per share for the class A non-voting shares held by most investors, $54.83 for each of the class B voting shares mostly held by the Greenberg family’s holding firm, as well as $769.23 a share for a special class of limited super-voting shares also controlled by the Greenbergs. It will pay using a combination of cash and BCE shares.

Michel Nadeau, executive director of Montreal’s Institute for Governance of Private and Public Organizations, released a personal opinion Wednesday criticizing the Astral-BCE deal. He said the special treatment of the Greenberg family amounts to roughly $100-million that could have been paid to regular shareholders, who hold 97% of the company’s equity.

“Over the years, the Greenberg brothers have been well paid for their management performance,” Mr. Nadeau writes. “As the company gets sold, they shouldn’t cash in on that management control like Mr. Stronach did — with impunity.”

Mr. Nadeau chided the company’s five-member special board committee, saying it should have been much more involved in negotiations with potential bidders and taken leadership to protect the interest of all shareholders. Mr. Greenberg started talks with BCE in late November 2011 but the company did not strike a special committee to supervise the negotiation until Feb.22 this year.

Hugues Mousseau, director of corporate communications for Astral, said he was surprised to learn about the criticism. He noted class A shareholders will be paid a 39% premium and that class B shares have always traded at a significant premium over class A stock.

A fairness opinion of BCE’s offer completed by National Bank Financial concluded that all categories of investors were treated fairly in the transaction. Said Mr. Mousseau: “I am absolutely convinced that the vote on the arrangement by all categories of shareholders will attest to that fact.”

Termed a “tangible benefits” package, the country’s largest telecommunications company will feel a material pinch from a financial commitment as high as $280-million that must be coughed up on top of the bid price.

The sum is based on a combined percentage of the value of Astral’s television and radio holdings. Current broadcast regulations demand any company acquiring commercial TV or radio licences from another must pay in transfer fees amounting to 10% of the value of the TV holdings and 6% of radio. The body which oversees the dispersal of those funds is the same who hands out broadcast licences, the Canadian Radio-television and Telecommunications Commission.

The cash is used to finance subsidy schemes such as the Canada Media Fund, which gives grants to independent content producers, among other initiatives set up to foster the creation of domestic television shows, movies and new media productions.

Related

In Astral’s case, that could mean roughly $220-million for the company’s television assets, which include The Movie Network and HBO Canada amid two dozen specialty cable networks and pay-television channels. With radio, where Astral owns 84 stations across the country, the fee attributable under the 6% rule would total slightly more than $60-million.

BCE bid for Montreal-based Astral last Friday, a move that will create the largest media enterprise in the country by far following the telecom giant’s successful acquisition of CTV Inc. last April.

The Astral deal benefits plan would exceed the $245-million Bell is paying because of its CTV purchase last year.

The Astral total though is likely to come down as BCE is forced to sell off some radio assets in markets where it would be in breach of ownership concentration levels.

Current regulations restrict radio ownership to no more than two FM stations and two AM stations under one company in a large market, and no more than three stations combined in smaller cities.

By that measure, Maher Yaghi, analyst at Desjardins Securities, suggests that no less than 10 stations will have to be sold in order to have the deal approved by the CRTC. It means, for example, two among four popular FM stations in Toronto, like BCE’s Flow or CHUM and Astral’s Virgin or Boom must be sold. The same kind of divestiture would be forced in the Montreal, Vancouver, Calgary, Ottawa and Winnipeg markets, the analyst said.

The company will have to pay a $150-million break fee if the bid fails regulatory approval. BCE executives believe the deal will be completed by the fall, including all necessary regulatory reviews.

As part of its efforts to mount an effective argument for regulators, BCE has enlisted the help of Bay Street legal heavyweight McCarthy Tétrault.

The level of ownership within television will also be scrutinized in upcoming hearings, analysts note.

A combined Bell Media-Astral entity would own 42% audience share among English-language television services — more than double its closest competitior in Shaw Media. In previous policy decisions, the CRTC has made clear it will “carefully examine” future transactions which lead to one interest controlling between 35% and 45% of a given market.

“While this regulation does not specifically argue for turning down the transaction, it suggests the commission will spend extra time analyzing the deal and its ramifications,” Desjardins’ Mr. Yaghi said.

[Correction: In a previous version of this story, the financial component of the tangible benefits package was said to go to the CRTC. That is incorrect, instead, the funds are widely dispersed through a process overseen by regulators.]

Shares of Corus Entertainment Inc. spiked 7.5% on Friday after BCE Inc.’s bid for Astral Media Inc. had investors speculating about who might be the next media takeover candidate. A BCE-Astral tie-up would make Corus the last major specialty broadcaster standing.

“Astral and Corus are very similar companies,” said Dvai Ghose, telecom analyst at Canaccord Genuity.

He noted that Corus has the monopoly on Movie Central in Western Canada, Astral has the Movie Network monopoly in Central and Eastern Canada, while both own a solid list of specialty digital TV channels and radio stations.

The key difference is that the Shaw family controls both Shaw Communications and Corus, while the Greenburg family is selling control of Astral to BCE.

As a result, Shaw Communications would not have to pay a change of control premium for Corus, as BCE is for Astral.

Mr. Ghose also noted that BCE will have to pay the CRTC’s 10% change of control tangible benefits change over seven years if it acquires Astral, but such a fee would likely not apply given the Shaw family’s control of Corus.

The analyst also sees much more synergies between Shaw Media and Corus than for Astral and BCE’s CTV.

“This is because Shaw Media and Corus even co-own some specialty channels by way of joint venture such as The Food Network,” he said.

Canaccord media analyst Aravinda Galappatthige believes Shaw could bid as much as $28 per Corus share in an all-stock deal. However, he thinks any lower price may not be accepted by shareholders.

“Despite that a potential Shaw acquisition should not represent a change
in control, and thus may warrant a lower premium, we do not believe
that Corus can be taken out for much less than the multiples paid for
Astral Media,” Mr. Galappatthige said.

BCE Inc.’s planned purchase of Astral Media Inc. should support a higher dividend for the telecom giant, but one analyst believes it will likely mean an end to its share buybacks.

UBS analyst Phillip Huang, who believes the deal makes strategic sense for BCE, estimates that Astral would contribute 15¢ to 18¢ in earnings per share and 12¢ to 15¢ in free cash flow per share. He also noted that the overlap between Bell Media and Astral’s head offices would create substantial synergies.

As a result, Mr. Huang anticipates the acquisition could support a 5% dividend hike by BCE is 2013.

With management planning to lower the company’s leverage to within its policy range of 1.5-2.0x by the end of 2014, Mr. Huang expects excess free cash (after dividends) through 2014 will be used primarily to pay off debt.

With BCE’s $250-million buyback program (announced on Dec. 8) now complete, and plenty of cash needed going forward for the purchase of Astral, MLSE and wireless spectrum, the analyst does not expect the company will repurchase stock through 2014.

BCE’s entry into out-of-home advertising through its acquisition of Astral will allow the company to offer advertisers media on more platforms and give itself some added exposure in the bargain, according to industry players.

While the out-of-home division is the smallest division in Astral’s portfolio, contributing $92.9-million in revenue in fiscal 2011, or about 9% of revenue compared with 57% from its television assets and 34% for its radio assets, it was the fastest growing thanks to acquisitions.

While Bell’s only exposure to billboards to date has been its presence as an advertiser on them, BCE chief executive George Cope told analysts on a conference call Friday that the company intends to hold on to Astral’s out-of-home business, calling it “a very strategic asset … and for those that don’t know, a very important part of the advertising portfolio of those in the telecom industry.”

Related

In Canada, Astral ranks third among the big outdoor media players, with an 18% share in Canada behind Pattison, No. 1 with a 43% share, and CBS, which has a 36% share, according to market data from the Canadian Outdoor Measurement Bureau. Astral leads the market, however, in outdoor digital signage, with 38 units relative to Pattison’s 21.

“Bell is [a large client] in digital out-of-home and it can be another medium and content platform for them to a degree,” said Sunni Boot, chief executive of ZenithOptimedia Canada. “They can promote their own products, cellular as well as media content, and they can cross promote.”

The deal gives Bell the ability to offer advertisers a fully integrated media campaign, said Michele Pauchuk, president of media agency MEC in Toronto — a key asset in media planning. “Our role is to follow the consumer wherever they may be, and it is a bonus for media planners to be able to create an integrated plan with one supplier who goes across the full [gamut of media services]. It allows you to go to that one supplier and create a very deep conversation about how you want to go to market.” MEC recently handled a Coors Light campaign across five platforms, she noted, with a media buy including a Sportsnet trade show, 590 The Fan radio, Sportsnet magazine, Sportsnet.ca and a Coors Light Hockey Central mobile app.

Offering such a suite will allow Bell to present itself to advertisers as an unbiased, media agnostic company, added Queen’s University business professor Ken Wong. “[As an advertiser] you are looking for someone who has no vested interest in using one media over another and someone who can offer you [media] in a more integrated way. I can see them also developing some proprietary sources to measure the general performance of integrated campaigns, which has been difficult to do.”

Even as a small piece of the business the out-of-home segment will be a good investment for BCE, Ms. Boot said. “Looking at the future they could always sell it — it is a pretty impressive portfolio” and there would be no shortage of takers.

Astral Media, Inc. (TSE: ACM.A) – $36.25 Cdn. is expected to open close to $50 Cdn. this morning after BCE Media announced an agreement to purchase the company at $50.00 per A share. The offer is at slightly higher than the stock’s all-time high.

TD Ameritrade Holding Corp. (NASDAQ:AMTD) – $20.34 slipped 0.6% after Deutsche Bank downgraded the stock from Buy to Hold. The stock has a positive technical profile. The stock has a positive technical profile. Intermediate trend is up. The stock trades above its 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been positive since late December. Short term momentum indicators are overbought, but continue to trend higher. Preferred strategy is to accumulate the stock at current or lower prices.

Microsoft Corp. (NASDAQ:MSFT) – $32.88 added 0.1% after Argus upgraded the stock from Hold to Buy. The stock has a positive technical profile. Intermediate trend is up. The stock trades above its 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been positive since the end of November. Short term momentum indicators are overbought, but continue to trend higher. Seasonal influences currently are positive. Preferred strategy is to accumulate the stock at current or lower prices.

Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux’s Web site

BCE Inc. is pushing the envelope once more in what now plainly looks to be the telecom giant’s ambitious plan to become the epicentre of Canadian television content around which all others in the domestic marketplace orbit.

BCE agreed Friday to acquire outright Astral Media Inc. in the latest in a string of deals that will make the country’s biggest telecommunications provider, through its new Bell Media division, the biggest holder of television properties in the country by far.

Just as with its successful bid last spring for CTV Inc. — Canada’s biggest TV network — and the pending regulatory nod for a joint controlling stake in Maple Leaf Sports and Entertainment Ltd., which owns the most lucrative collection of sports properties in the land, the company expects a quick trip through the regulatory gauntlet put down by the Canadian Radio-television and Telecommunications Commission and the Competition Bureau.

Related

“We see it being a pretty straightforward process,” Siim Vanaselja, BCE’s chief financial officer, said in an interview. The CRTC and bureau “have pretty clear policy statements” to which Bell is confident it can adhere.

Astral is no small constellation in the Canadian media universe, owning fully or in part 24 specialty channels and pay-TV networks, including The Movie Network, HBO Canada and Super Ecran in Quebec.

A brief review of the CRTC’s annual monitoring report reveals the magnitude of the deal for Bell’s market power in dealing with advertisers, adversaries seeking to access content to distribute on their own television and wireless platforms, and perhaps consumers.

Screen grab/HBO CanadaAstral’s specialty channels and premium pay-television networks, such as HBO Canada, will join with Bell’s CTV Inc. broadcast network and more than twenty specialty channels already owned by Bell under Bell Media if the deal is approved.

A combined Bell Media-Astral will hold more than 40% of specialty-channel viewing share among English-language viewers. Total commercial television revenues of the combined entity would amount to 40% of the market, or more than double its closest competitor in Shaw Communications Inc., which owns the former television assets of Canwest Global Communications Corp.

The strengthened position will give Bell unparalleled leverage over even other large, vertically integrated service providers such as Rogers Communications Inc. in negotiating content deals, analysts say.

One area in which tensions may boil over is in mobile. Astral has embarked on launching later this year the popular HBO GO service for smartphones, tablets and online. Under Bell’s ownership, it may be difficult for Rogers and Telus Corp. to secure the service for their subscribers, some industry observers said.

New rules guarding shared access have recently been erected by the CRTC, but BCE chief executive George Cope told reporters in Montreal it was his company’s job to “constantly push” the boundaries on what it can do with its broadcast content.

With few domestic assets as large and valuable as Astral left, the $3-billion price tag (plus debt), which exceeds the $1.3-billion Bell paid for CTV less than a year ago, appears to be a fair valuation, analysts said.

Executives from both companies said the transaction will be immediately accretive to Bell’s cash flow, while the purchase of Astral equity (including buying out the controlling Greenberg family), won’t hinder Bell’s dividend growth plans or capital investments being made to broadband Internet and wireless networks — the pipes that will carry Bell’s content to end users.

Astral shareholders are to vote on the transaction on May 25. However, with the support of the Greenbergs and Astral’s biggest holder of class B shares, the Bronfman family, no material opposition is anticipated, analysts say.

While the deal will expand Bell’s media presence nationally, another major strategic rationale is to bolster the company’s French-language media assets as Bell competes head-to-head with Quebecor Inc. in Quebec for advertising dollars as well as subscribers to Internet, wireless and television services.

Astral owns several French-language television and radio assets that will enhance the telecom giant’s appeal in the Montreal-based company’s home province across all those categories, denting a significant cultural advantage held by Quebecor.

Mr. Cope said the deal is expected to close within six months, while Bell is prepared to “evolve” the transaction as needed, which may include divesting Astral radio stations in Vancouver and Toronto, where regulators will likely have concentration concerns.

The agreement, which took about two months of negotiating, came together with near-cosmic serendipity, Mr. Vanaselja said, under the code name “Aurora” used internally by Bell after the aurora borealis.

“We see Astral as the last remaining and brightest light in Canadian media,” the executive said. “Strategically, operationally and financially, the stars just seemed to be aligned.”

Following are the milestones in Astral’s evolution as a pure-play media company:

1967: The Greenberg brothers get exclusive rights to sell photo products at the Montreal Universal Exposition.

1968: The Greenberg brothers acquire Pathe-Humphries, which provides technical services for the film industry and owns a film development lab and recording studio in Toronto. Buy the three Centre Photographique de Montreal stores and expand it into a chain of 125 stores across the country.

1983: The Greenberg brothers launch two pay television channels, First Choice and Premier Choix, now called The Movie Network and Super cran. Cease all film production activities to comply with regulations.

1984: Enters the videocassette distribution market with Bellevue Home Entertainment.

1986: Set up The Harold Greenberg Fund, a private fund supporting scriptwriting and production in the Canadian film industry.

1988: Launches youth channels, Family Channel and Canal Famille, now known as VRAK.TV.

]]>http://business.financialpost.com/fp-tech-desk/bce-snaps-up-astral-media-for-3-38-billion/feed0stdIf the cash-and-stock deal gains approval — which is perhaps an obstacle — Astral’s specialty channels and premium pay-television networks, such as HBO Canada, will join with Bell’s CTV Inc. broadcast network and more than twenty specialty channels already owned by Bell under Bell Media.Astral’s specialty channels and premium pay-television networks, such as HBO Canada, will join with Bell’s CTV Inc. broadcast network and more than twenty specialty channels already owned by Bell under Bell Media if the deal is approved.Astral and Corus have opportunities, challenges with HBO GOhttp://business.financialpost.com/investing/trading-desk/astral-and-corus-have-opportunities-challenges-with-hbo-go
http://business.financialpost.com/investing/trading-desk/astral-and-corus-have-opportunities-challenges-with-hbo-go#respondWed, 01 Feb 2012 14:50:56 +0000http://financialpostbusiness.wordpress.com/?p=137889

With Astral Media Inc. and Corus Entertainment Inc. bringing the HBO GO online video streaming service to Canada over the next year, the broadcasters will have a new weapon to help offset the impact of maturing Pay TV growth and the threat of Netflix Inc.

Canada’s Pay TV market has seen modest revenue and subscriber growth in recent years on the back of the launch of HBO Canada and ongoing conversions of cable subscribers from analog to digital service.

However, the number of subscribers signing up for premium service has begun to slow and remains below levels seen in the U.S. market, according to Paul Steep, analyst at Scotia Capital.

He believes that if both Astral and Corus can leverage HBO GO to boost Pay TV subscribers to levels similar to the United States, their net asset values could rise by approximately $1.00 per share.

HBO has an estimated penetration rate of 28%, or more than 28 million, for U.S. TV households.

In its fourth quarter letter to investors, Netflix admitted that HBO GO represents the biggest competitive threat to the popular Internet movie and TV provider’s business.

Rather than launching an independent service, Mr. Steep expects Astral and Corus to work closely with their cable, wireless, telephone and satellite partners to ensure a successful launch of HBO GO in Canada.

However, he warned that the roll-out will likely face similar challenges to those faced by Time Warner Inc.’s HBO unit during the U.S. launch of HBO GO, which began in 2009. The analyst said the speed of implementation and broad consumer availability is dependent on factors such as the technological maturity of potential partners and their differing strategies.

Another key issue that will need to be address is the authentication process users must go through to access content using tablets and mobile devices. This is important given that approximately 45% of HBO GO users stream content through these devices.

TORONTO — The federal broadcasting regulator has decided against regulating online-streaming companies such as Netflix Inc. that provide television and feature films over the Internet.

The decision Wednesday followed a months-long consultation into whether such companies should be considered broadcast undertakings akin to traditional television networks, and therefore should be beholden to the same rules — especially as Netflix and others are perceived to be poaching subscriber revenues from the system.

An initial review, however, has produced “inconclusive results,” the Canadian Radio-television and Telecommunications Commission said, noting there isn’t “any clear evidence” that so-called over-the-top services (OTT) are negatively impacting the broadcast system. At least not yet.

“There is no clear evidence that Canadians are reducing or canceling their television subscriptions” in favour of the new exempt services, the commission said.

Fears that new digital interlopers are undermining the industry — and thus the financial contributions it makes toward various subsidy schemes — were inflamed this spring when Netflix won movie rights to Paramount Pictures titles away from Canadian pay-TV operators Astral Media and Corus Entertainment. The Los Gatos, Calif. company, which launched in Canada in September, was fast approaching one million subscribers at the time.
Since then, however, industry anxiety has ebbed. Netflix has not made much more headway into the Canadian market as traditional domestic rights-holders locked in longer-term deals with Hollywood studios for both the TV and online windows.

After considering industry submissions, including from online stakeholders such as Google Inc., which opposed new rules for streaming-content services, regulators have decided to punt a verdict to a future date.

“Any regulatory decision that is a benefit to consumers is just fine with Netflix,” said Steve Swasey, the company’s vice-president for communications.

Despite the setback, Montreal-based Astral, which operates flagship pay channel The Movie Network, said regulatory action will be required.

“There’s new Internet-based broadcasters entering the country,” said Astral spokesman Hugues Mousseau. “It has created a situation in which they have access to Canadian consumers but are not contributing to our economy, our system, because they have no obligations [to]. What we’re asking for is a level playing field.”

Astral and Corus say Netflix and Apple TV should be subject to the full extent of television regulations, which carry provisions on the amount of Canadian content that must be shown. That would also mean new financial burdens for digital-only providers, such as contributions to local programming and the Canada Media Fund, which funnels industry profits back into the production of Canadian projects.

Analysts note the pay TV window in Canada has seen virtually no impact from OTT services to date despite the rhetoric.

“If you look at the performances of those division in those two companies you do not see any erosion,” said one analyst of Astral and Corus (which owns Movie Central), asking not to be named because his bank prohibits media interviews.

Yet the CRTC acknowledged there is indeed “growing activity” among consumers watching content online, and said it will make the matter a focal point during upcoming annual consultations with the industry.
Traditional linear television still accounts overwhelmingly for subscriber and ad revenues, but viewer trends are shifting toward online.

In the United States, more than 450,000 households cancelled TV subscriptions in the second quarter in part because of the slowing economy but also as they move to online watching. In Canada, popular services such as video streaming website Hulu are unavailable because rights to programming are owned by the Canadian operators who are keeping a tight lid on what goes online. The television market has continued to post gains — 2.6% in 2010 to 11.5 million homes, according to the CRTC.

The CRTC said it was watching trends closely, and that another “fact-finding” exercise will occur in May.

The recent pullback that saw stocks move into bear market territory surely has many value investors starting to hunt for bargains.

However, objective measures of valuation are particularly important these days for those who want to avoid potential traps, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

He noted that a portfolio simply comprised of low P/E stocks has proven to be a good choice over time as a group of the cheapest 20% TSX members has outperformed the broader composite index and any other quintile over the long term by more than six percentage points.

Yet the returns for this top quintile have proven to be rather inconsistent with almost 40% of the group in negative territory in any given quarter. At the same time, slightly more than half of this group has been able to outperform the Canadian benchmark.

In other words, “this winning basket potentially contains a high number of value traps,” Mr. Zyblock told clients.

He found that a strategy that overlays fundamental momentum and/or predictability among the low P/E names helps find true value opportunities. Meanwhie, those names in the low P/E group that demonstrate low momentum and low growth are more likely to be value traps.

RBC’s quantitative analysts highlighted what they consider value opportunities and value traps. The results are below.

The Opening Bell is our daily snapshot of the stock markets, including a wrap up of the must-read business stories for the day.

Stock markets saw moderate gains Thursday as economic data, led by a dip in jobless claims, painted a more hopeful picture for the U.S. economy.

Jobless claims fell by 22,000 last week to 405,000, the lowest number of claims since mid-April. The figure also renewed hopes that claims could soon fall below the 400,000 threshold, which would be a bullish sign for the labour market.

Other American economic data included a 0.1% rise in retail sales for June and a slight 0.4% dip in producer prices.

Here is a look at what the markets were doing just after the opening bell on Thursday, July 14:

The Dow Jonesgained 4.88 points, or 0.04%, to 12,496.49
The S&P 500gained 2.16 points, or 0.16%, to 1,319.88
The Nasdaqgained 2.52 points, or 0.09%, to 2,799.44
The S&P/TSX gained 70.04, or 0.53%, to 13,395.06

Here are the stories that will be impacting trading throughout the day:

No stopping gold’s bullish run

Gold prices hit record highs for a second day on Thursday after hints of further policy easing from the Federal Reserve and a Moody’s warning the United States may lose its top-notch credit rating hurt the dollar and sparked buying of safe-haven assets. http://natpo.st/qS2NX7

JPMorgan profit beats Street

JPMorgan Chase & Co posted higher-than-expected quarterly profit as it wrote off fewer bad mortgages and credit card loans. JPMorgan, the first big U.S. bank to report second-quarter results, said it earned US$5.4 billion, or US$1.27 a share. Wall Street analysts, on average, had expected US$1.21 per share. http://natpo.st/ruF36q

U.S. retail sales unexpectedly edged up in June as a rebound in receipts from auto dealers offset the biggest drop in gasoline sales in a year, a government report showed Thursday. Total retail sales rose 0.1%, the Commerce Department said, after a dipping 0.1% in May. Economists polled by Reuters had forecast sales slipping 0.1%. http://natpo.st/nhHzIJ

Astral profit rises on ad growth

Multimedia company Astral Media Inc. reported third quarter profit rose 1.7% to $49.3-million Thursday, led by strong growth in its out-of-home advertising segment. The Montreal company said excluding one-time items, it posted a profit of $52.8-million, compared with $48.5-million the previous year. http://natpo.st/q61Oab

Nexen’s profit up slightly, cuts 2011 production

Canada’s No. 6 independent oil explorer Nexen Inc reported a slightly higher quarterly profit helped by higher oil prices, but cut its 2011 production forecast. The company said it now expects annual production before royalties to average between 210,000-230,000 boe/d (barrels of oil equivalent a day). http://natpo.st/rfOa9E

Also, be sure to check out our in-depth overview of Canadian stocks to watch, analyst recommendations and other market advice:http://natpo.st/qvWf5b

TORONTO — Canada’s leading television companies are taking aim at Netflix Inc. and other online-streaming services, attempting to drag the fast-growing competitive threat to the TV business into the same regulations they are beholden to.

Senior executives for Astral Media Inc. said Thursday documents have been filed with regulators seeking a review of the California streaming service’s ability to legally operate in Canada without paying a cent on broadcast licences and subsidy funds that finance the production of domestic content.

Netflix’s impressive growth here threatens to be slowed if the Canadian Radio-television and Telecommunications Commission levels new fees on it, adding to the company’s costs — perhaps spilling onto its customers. Bogged down with new regulatory requirements, the firm’s zeal to go after new content rights for its Canadian library also faces withering.

Moreover, the outcome of a formal review is sure to establish precedents for the treatment of all future online or so-called “over-the-top” distributors looking to introduce streaming services in Canada.

“The objective from an industry point of view is to maintain a level playing field,” Astral chairman André Bureau said on a conference call.

He said the current network of fees and regulations overseen by the CRTC for television broadcasters and distributors — a system online firms such as Netflix bypass at present — was “very positive” for the development of national culture, identity and the economy.

“And we’re trying to have the regulator look at this from the same point of view,” he said.
Montreal-based Astral, which operates 18 specialty and pay TV channels including HBO Canada and Family channel, has jointly filed a request to the regulatory commissioners with other sector players, including Corus Entertainment Inc., the owner of 17 pay and specialty channels.

John Cassaday, Toronto-based Corus’s CEO, said Thursday that Netflix and other over-the-top providers do not pose a significant threat to its business, and will not for some time.

“Are we responding to this? Yes,” he said. “Do we think it’s life threatening? No.”

But the request, made April 1, suggests industry stakeholders are indeed concerned.

Netflix, which launched services in Canada last fall offering a library of older TV shows and movies for $7.99/month, hopes to top one million subscribers by the summer, chief executive Reed Hastings said in a recent interview with the Financial Post.

A base of that size would generate $96-million in yearly revenues, on par with what pay channels such as The Movie Network owned by Astral and Movie Central owned by Corus generate, a factor suggesting the Los Gatos, Calif.-based Netflix can handily compete for content rights with domestic premium channels.

It has already. In March, the online distributor upped the threat level to traditional players by winning the rights to new Paramount Pictures releases in the pay-television window. Both Canadian television operators were in the bidding.

The April 1 request was made via a letter from the Canadian Media Production Association, which has established a special committee with other industry members chaired by Alain Gourd to investigate the financial and cultural impact of “OTT” players on the market.

When reached for comment, a spokesperson for the CRTC said the unorthodox request was under review with no decision made on whether the commission, which has been hesitant to wade into regulation of the Internet but is sensitive to culture-related issues, will oblige.

The multi-year licensing deal Netflix has signed with Paramount Pictures raises the stakes in the Canadian pay TV market, paving the way for a content battle with the likes of Astral Media Inc. and Corus Entertainment Inc.

The agreement gives Netflix 350 new movie titles, including the exclusive subscription television rights to all first-run films for Canadian members. As the company attempts to drive subscriber growth further, it is expected to attempt to lock up additional movies and TV series.

Scotia Capital analyst Paul Steep anticipates that both Astral and Corus will vigorously defend their existing pay TV franchises by proactively working to secure content agreements with studio partners.

“Both firms have a demonstrated history of making disciplined choices to maintain margins, having chosen to not have all studios represented in their content library,” he told clients, noting that Astral and Corus have staggered their major studio renewal agreements.

The analyst believes that there will be an increased focus on content deals and their contribution to the health of the overall business over the long term. And thanks to the presence of Netflix, higher content costs.

Astral and Corus apparently did not agree with Paramount on pricing and other terms during recent re-negotiations, chosing to drop the studio from the pay line-up, RBC Capital Markets analyst Drew McReynolds said in a research note. While such a move is not without precedent, it nonetheless opens the door to competition by allowing new “over-the-top” (OTT) services a stronger foothold in Canada.

He noted that Twentieth Century Fox and Paramount are the only major U.S. studios not currently under a pay television output deal with Astral and Corus. The two studios represented 30% of the Canadian box office in 2010.

If these over-the-top services are to succeed as a substitute for cable and satellite television over the long term, Mr. McReynolds thinks several things need to happen. Rights to premium programming needs to be secured, there must be the option for internet-enabled television in Canadian living rooms, and broadband must be affordable. He added that the extent to which a “TV Everywhere” strategy is successfully deployed by the incumbents will play a major role in therate of
substitution.

The analyst sees a limited near-term impact from OTT services, with no material effect on earnings, but negative sentiment on valuation. However, in the three to seven-year range, he anticipates higher programming costs due to increased buying power from OTT services will impact broadcasting margins.

For Astral and Corus, pay television is estimated to represent 24% and 21% and 16% and 11% of consolidated revenues and EBITDA, respectively.

“The money that we’ve raised isn’t a direct result of [the AOL-Huffington Post deal], but the fact is, The Huffington Post was in many ways part of the inspiration for The Mark,” chief executive Jeff Anders said in an interview.

“What they understood was there are too many smart people out there with important things to say and — especially in Canada — not enough credible platforms to speak from on demand. Even former Prime Ministers can write in the Globe and Mail whenever they want, but not every week. The fact is, we do something similar, but we’re a very different business model.”

The list of individual investors in The Mark’s most recent round of funding includes:

Mr. Anders declined to offer specific figures regarding the investment round. The company, which Mr. Anders said is cash-flow positive, raised its first round of financing in the summer of 2009.

Mr. Greenspon, who has acted as an editorial mentor to journalists at The Mark, has signed on as an individual investor, and not as a representative of Star Media Group, Mr. Anders said.

Arlene Dickinson, chief executive of Venture Communications Ltd. and a star of CBC’s Dragon’s Den series, was an investor in The Mark’s first round of financing and sits on the company’s board of advisors.

Bryan Pearson, chief executive of Air Miles parent company LoyaltyOne, is also on the company’s board of advisors.

“I continue to be very impressed with Jeff’s leadership and vision as well as the terrific quality of content The Mark delivers each and every day,” Facebook’s Mr. Banks said in an email to the Financial Post.

“It’s a Canadian success story we can all be very proud of.”

Unlike The Huffington Post, which dedicated itself to building a massive audience of readers which could then be monetized — similar to more traditional media properties — Mr. Anders said The Mark is experimenting with several different business models as it seeks to monetize its online content.

In addition to its flagship news site, The Mark News, the company aims to create high quality online content brands based around individuals which are then syndicated to major media properties, like Yahoo News, Postmedia Network and CityTV.

One unique way The Mark generates revenue is by allowing certain organizations to sponsor custom news sites or publications dedicated to particular topics, something it calls “Hosted Conversations.”

For example, the company has been hired by the Canadian International Council — the foreign policy research group chaired by Research In Motion Ltd. co-chief executive Jim Balsillie — to create a miniature version of the company’s News Website dedicated to foreign policy discussions, which The Mark then operates for a fee.

“We don’t want to be branded content as such,” Mr. Anders said.

“We want to be like a conference organizer where we will be the venue and we’ll bring out the leading influential people on a particular topic and we’ll allow brands to sponsor the venue in a sense.”

Thanks to the power of social media sites like Twitter and Facebook, companies are beginning to look at online content as a way of communicating directly with their customers. Mr. Anders believes The Mark is uniquely positioned to offer content services to companies looking to build relationships with customers in ways that go beyond traditional advertising.

“Traditional advertising is episodic,” he said.

“A company comes out and throws a couple of million dollars at an advertising campaign over six weeks and then they go dark, and then a few weeks later they do it again. That’s not the way relationships work between humans, and there’s no reason why that should be the way that relationships work between companies and customers.”

Investors generally accept risk-taking as a fundamental part of playing the stock market, but it turns out the least risky stocks over the past 30 years on the TSX have actually outperformed their more volatile peers.

Chad McAlpine, quantitative research analyst with RBC Capital Markets, split up all the stocks in RBC’s Canadian coverage universe into five groups based on the standard deviation of their monthly total returns.

Stocks with the lowest beta, a measure of volatility in relation to the market, posted an annualized return of 16.6% over a 30-year period, while stocks with the highest beta returned only 11.5%.

“People tend to overpay for riskier names,” Mr. McAlpine said in a note to clients. “Similar to buying a lottery ticket, investors are generally willing to pay a premium for a high potential return, even if the positive outcome has a very low probability of succeeding.”

After screening for the lowest-risk, highest-quality Canadian stocks based on five-year beta and five-year return stability, Mr. McAlpine has come up with this list of recommended stocks, which include several businesses in the consumer staples, financials, and utilities: